A monopolist is free to set prices or production quantities, but not both because he faces a downward-sloping demand curve. A monopoly is a market with only one seller. This is the most extreme, but not the most common, example of market power. If you are able to move the equilibrium price with your own choices, then you can be referred to as a 'price-setter.' In reality, in many situations, somebody in the market has some power to change prices through their individual actions. Hence, you have to 'take' whatever the price is. In this case, the equilibrium price in a market is defined by so many different transactions that anybody who wishes to buy or sell in this market has to do so at the market equilibrium price, and they are not able to move the equilibrium price with their own actions. Our first assumption is that of market power, which states that everybody is a price taker, or that there are many buyers and sellers in a market.
For this section, please read Chapter 11: 'Price Searcher Markets with High Entry Barriers.' from Gwartney et al.įrom Greenlaw et al.